Trade Groups Contend Proposed Target-Date Fund Changes Too Vague

By Murray Coleman

Regulators are taking a closer look at target-date retirement funds. And leading providers such as (T. Rowe Price (TROW), J.P. Morgan’s (JPM) asset management arm, Fidelity and Vanguard are looking at ways to make their offerings more user-friendly.

Trade groups aren’t pleased with some of the proposals. The American Society of Pension Professionals and Actuaries wants clarification of the “ambiguity” in the potential changes. Financial advisers also want more detail from regulators about their proposals and contend the moves are off-the-mark.

The $300 billion target-date industry was heavily criticized after some portfolios were estimated to have lost as much as 25% during the financial crisis, notes Ian Salisbury of Dow Jones Newswires.

In his latest Getting Personal column, he writes:

“Target-date funds are supposed to be a simple investment option. As it turns out, fund companies and regulators are still hashing out one of their most basic facets: what the ‘target’ should tell investors about a fund’s risks and investing style.”

The Department of Labor has released comments by fund providers and industry consultants to new proposals to increase transparency in target-date products, which appear in many 401(k) plans.

As Salisbury notes, some fund companies are arguing that funds need to take more risks the longer a portfolio’s target-date is set. Typically, target-date funds increase exposure to income-producing assets like bonds the closer a pre-set retirement date approaches.

The industry continues to evolve and still has many critics. It started with a simple enough concept: give investors with little or no interest in managing their own portfolios a way to automatically adjust stock and bond allocations over time. But as these funds become more mature — the first ones came out in the mid-1990s — managers are finding out it’s not as simple as they probably first envisioned.

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